Are the behaviours and comments of sovereign investors telling us they expect the US currency to be worthless in the near future? Are our Treasury officials buying up Treasuries to enhance the market value or is it destroying the value of what we used to call the US Dollar? Monopoly money, anyone?

China has an estimated $2 trillion in foreign reserves and is the United States’ largest creditor, having bought more than $1 trillion of its debt.

Chinese Premier Wen Jiabao expressed similar concerns about the state of the U.S. economy and President Barack Obama’s economic plan earlier this month.

“We have loaned a huge amount of money to the United States,” Wen said at a news conference in Beijing on March 13. “Of course, we are concerned about the safety of our assets. To be honest, I’m a little bit worried. I would like for you [a western reporter] to call on the United States to honor its word and stay a credible nation and ensure the safety of Chinese assets.”

[Excerpt from:]

March 24, 2009 — Updated 0737 GMT (1537 HKT)

China to buy more U.S. debt

BEIJING, China (CNN) — China, holder of nearly $1 trillion in U.S. debt, will keep buying Treasuries, but will keep a close eye on their value just the same, a Chinese government official said.

In fact, three times within the last four months, the Chinese Premier has made a statement of concern about the value of assets they have purchased in order to underwrite our debt. This also happened during their Congress and when Secretary of State Clinton spoke to them publicly about continuing their help to us and our economy. At one point, there was a statement that the Chinese made about waiting to see what values the assets have and there was a quick mention on the news about a week later about them selling some of these assets and bonds on the open market.

I don’t know but it seems that the “new” call to change the international currency standard would allow several large economies to be completely re-valued, especially those whose primary resource foundations are in metals, crude oil, various necessary commodities, and technology. China has been purchasing large resource operations which will permanently manage their domestic needs for metals and other chemicals, fertilizer components and similar things. They’ve made recent bargains for petroleum that would make anyone envious and obviously intended to secure that resource for a long period of sustainable domestic growth. I’m not sure that the markets in the United States are required for any of these countries, including China over any appreciable period of time realistically. They have turned their attention Eastward and toward domestic provisions, it could work – they don’t need us.

Last summer and umpteen times before that, the oil-producing nations of the OPEC roundtable were insisting on the same change such that crude oil would no longer be based on the US dollar. It was also one of those items that has appeared in the discussions over some period of time and since the volatility of US speculations has rocked the price to extremes, it makes the changeover seem less and less difficult for the advantages.

– cricketdiane, 03-24-09

***

Zhou’s comments came only two weeks after Chinese Premier Wen Jiabao said his government was concerned at its heavy exposure to U.S. debt. The state bank of China holds more U.S. Treasury bonds than any other country in the world — $681.9 billion in November.

Zhou’s warning is of huge significance: It threatens prospective hyperinflation and ruin for the U.S. economy and the loss of the dollar’s role since World War II as the global currency.

Zhou proposed that the International Monetary Fund should include more currencies in its Special Drawing Rights, which have not been revised since 1969. Currently the IMF uses the U.S. dollar, the Japanese yen, the British pound sterling and the euro to determine the value of the SDRs.

Despite the glee among American investors over Wall Street’s latest recovery spike Monday, this proposed move would shake the U.S. economy. If China pulled out of U.S. Treasury bonds in a big way, the next largest holder, Japan, would almost certainly do so as well. Britain, the No. 3 holder, with more than twice the value in U.S. bonds than Saudi Arabia and all the Gulf states combined, would probably follow too.

The looming crisis has been directly caused by U.S. President Barack Obama’s inability so far to rein in the wild spending of and printing of dollars that started under his predecessor, Republican President George W. Bush. Obama’s much criticized stimulus package passed by both houses of Congress last month contained only around $81 billion of actual stimulus among its $787 billion in measures. Geithner’s new proposal to restore liquidity to America’s banks would pump more than $1 trillion in extra cash into the U.S. economy.

Russia has posited an idea similar to Zhou’s proposal. Beijing and Moscow look likely to float such measures at the scheduled Group of 20 nations world economic summit in London.

U.S. leaders, legislators and pundits have paid relatively little attention to the slowly but surely mounting voices of concern and warning emanating from Beijing. Instead, there was optimism about Geithner’s anticipated appearance Tuesday before the House Financial Services Committee to talk about banking reform. The 500-point surge in the Dow could make his appearance easier before people who have been calling for Obama to fire him.

The other night immediately preceding the huge Dow gain of almost 500 points (497), I noticed that there were some interesting patterns coming from large investors in the overseas markets. It is only conjecture, but what if this big rally and the ones on the same day overseas were caused by large players dumping dollars by using them to purchase chunks of something – anything that might have a better return value later, (rather than holding large reserves of US currency)?

It is just a thought, but there were some mentions about large middle eastern investors and sovereign funds participating where they had been sitting on the sidelines. I don’t know that it would mean the same thing if that is what actually had happened which produced the nearly 500 point jump in the Dow.

Remarkably, as players in the market see others getting into the boat, so do they, whether the fundamentals say to do so or not. And that could have created the “rally” artificially. If there are big players dumping dollars in trade for anything that isn’t nailed down in order to cover value in anticipation of US currency being worthless and to shore up their previous coverage of the US debt, then there is a bigger problem than whether the stock market is doing good today or not.

Last night and today, there were financial advisers suggesting a more cautious approach about this rally, both because it may be only a “bounce” or it could be something else which doesn’t convey that we had reached the proverbial “bottom” that many are obsessed to identify.

US currency values, asset and debt values, creditworthiness and Treasury values have obviously been quite a topic of concern behind the scenes and those few times that public comments have been made from many different foreign leaders, especially those holding significant US IOUs and notes, showing that concern. It has only been a matter of time, while our country’s news anchors, business leadership and Treasury department has looked like a bunch of mice running around in a paperbag without any real appreciation of what this is doing to a much bigger situation.

In one sense, it won’t matter if things are “pegged” to the dollar, such as barrels of oil, commodities of one kind and another, world currencies and trade balances, banking indices and other things. In another sense, once it is taken from the US – it won’t ever be changed back to the dollar thereafter and most real, tangible things will be re-valued as a result, whether to our benefit or to our detriment.

We are already in a very vulnerable position as a result of the snake oil selling mentality of our “financial services” and banking industries. And, all the while, they are still running around trying to keep the same game going and acting like it is all about them. I personally wish they would become part of the solution that could actually work and benefit us all rather than continuing to be the source of the problems. It’s a thought.

We’re just still very lucky that many countries around the world secretly admire our gung-ho American uniqueness even though they hate our guts. Now that our financial services gangs from Wall Street have taken everybody for a ride and screwed half the World – I’m not so sure the rest of the World will see any redeemable qualities in the US worth saving. Especially since everyone else has the money and we don’t, anything worth saving – they can buy right out from under us and let the rest go to hell. That is the risk.

– cricketdiane, 03-25-09

***

In the World, we are dealing with entities that do not consider things in terms of a quarter or a year or a week or a day, but rather in terms of many years, and often, of many generations. The societies around us have been ordered, civilized social structures that encompass many hundreds of years, thousands of years in some cases. The way they have learned to look at things takes in a greater stretch of the imagination across time and generations far past today.

We have been offering things to the rest of the World that are now in jeopardy. Part of that is a massive consumer economy where their goods, commodities and natural resources could be sold to the betterment of their own economies. Without that, what do we have to offer?

Any of our “creatively engineered” financial products found to be worthy of use, can be re-created elsewhere. The US and its Wall Street financiers aren’t the only ones that can do that. The leveraged, leveraging, and over-leveraging that has been given free reign in the US, along with the exotic and now toxic credit derivatives can be manufactured anywhere to underwrite and securitize debt, if that is a desirable way to do it.

In fact, now that the dangers of underwriting and insuring credit in the manner that has been allowed in the US over the last thirty years have been experienced, new financial credit products will likely be produced in other places that are fairer, more reasonable, more prudent and generally, safer. We’re already paying the price for creating, using, trading, repackaging and selling these credit derivatives in ways it shouldn’t have been done.

Since 1999, the G-20 has contributed to strengthen the international financial architecture and to foster sustainable economic growth and development. The G-20 now has a crucial role in driving forward work between advanced and emerging economies to tackle the international financial and economic crisis, restore worldwide financial stability, lead the international economic recovery and secure a sustainable future for all countries.

The financial markets and the world economy continue to face serious global challenges and the severity of the crisis and ongoing uncertainties demonstrate the need for urgent action. During the United Kingdoms Chair, the immediate priority will be to gain further agreements for a concerted, co-ordinated international response.

The G-20 will need to send a strong signal that it is prepared to take whatever further actions are necessary to stabilise the financial system and to provide further macroeconomic support. At the same time, the G-20 must commit to maintaining open trade and investment, to avoid a retreat to protectionism, and direct necessary additional support to emerging markets and developing countries.

The G-20 should also lay the foundations to move beyond the crisis to a sustainable recovery. In 2009, it will be important to understand the roots of the international financial crisis and identify the lessons that we can learn to ensure that a crisis of this kind does not happen again. The G-20 should develop proposals that will restore global growth in the medium term, including the unwinding of emergency measures taken in response to the crisis.

Barack Obama called for ‘bold’ action at the London Summit while Gordon Brown told MEPs it was vital to ‘remove uncertainty’ from the banking system as he embarked on a tour that takes in the US, Brazil and Chile. The focus of the debate shifted to banking issues as the Prime Minister met with the heads of 13 global banks and the US Treasury unveiled plans to buy up to $1 trillion of impaired bank assets.

Milestones on the road to the Summit

Agreement has now been reached on many of the steps that can help restore global economic growth through enhanced international coordination, and on further measures to be recommended to the leaders at the London Summit on 2nd April.

Ban Ki-moon on the danger of a political crisis

Key achievements ahead of the London Summit

The objective of the London Summit is to bring the world’s biggest economies together to help restore global economic growth through enhanced international coordination. To achieve this requires three commitments by world leaders:

First, to take whatever action is necessary to stabilise financial markets and enable families and businesses to get through the recession.

Third, to put the global economy on track for sustainable growth, high levels of employment and poverty reduction.

In the four months since the Washington Summit, international events such as the World Economic Forum in Davos have provided forums for discussion of possible solutions to the global economic crisis. Countries and regional groups from around the world have also been working closely together to find practical policies to meet all three commitments. Several governments – including Spain and Russia – have set out their own agendas following publication by the UK of its plan for recovery – The Road to the London Summit.

In the run-up to the London Summit, several preparatory meetings have made considerable progress in reaching agreement on some of the key issues. At the recent meeting of G20 Finance Ministers and Central Bank Governors, the following were agreed:

A commitment to fight all forms of protectionism and maintain open trade

A pledge to deliver the scale of sustained effort necessary to restore growth

A promise that central banks will maintain expansionary policies as long as is needed

A recognition of the urgent need to increase the resources of the International Monetary Fund

Action to restore bank lending through measures such as liquidity support, recapitalisation and dealing with impaired assets

Appropriate regulation and oversight of all systemically important financial institutions, markets and instruments – and registration of hedge funds or their managers

Stronger regulation reinforced by macro-prudential oversight to prevent the build-up of systemic risk

Changes to international banking regulations to ensure they dampen rather than amplify economic cycles

Supervisory colleges, with strengthened international cooperation to prevent and resolve crises

Regulatory oversight of all credit rating agencies whose ratings are used for regulatory purposes

Identification of non-cooperative jurisdictions – and a tool-box of effective counter-measures

Sound practice principles for compensation

Enhancement of the governance of international financial institutions to strengthen their effectiveness and legitimacy – including open, merit-based selection processes for their heads.

Ahead of the G20 preparatory meeting, the Financial Stability Forum agreed to increase its membership to include all the G20 countries, in order to enhance its ability to contribute to improving the international financial system. At the same meeting in London, the FSF also agreed on action to improve banking regulation, get rid of bankers’ bonuses that encourage excessive risk-taking and strengthen cross-border crisis management.

Some countries have already acted in anticipation of final agreement at the London Summit. Japan has agreed to lend the IMF $100m, even before agreement is reached on a figure for the increase in its resources. Switzerland, Austria and Luxembourg have followed Hong Kong, Singapore, Andorra and Liechtenstein in taking steps to improve the exchange of tax information with other countries in line with international standards drawn up by the Organisation for Economic Cooperation and Development.

Others will follow suit in the days ahead, as the final measures needed to complete the global deal to be reached in London on 2nd April are agreed.

On January 15, 2009, the World Economic Forum released its initial report from the New Financial Architecture project, “The Future of the Global Financial System: A Near-Term Outlook and Long-Term Scenarios.” The effort was mandated by the World Economic Forum’s investors and financial services communities in January 2008 to explore the driving forces that are shaping the global financial system and how these forces might affect governance and industry structure.

Key conclusions from phase one report – “The Future of the Global Financial System”The phase one report identifies a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector, some restructuring by alternative investment firms and the emergence of a new set of winners and losers.

Over the long-term, a range of external forces and critical uncertainties will further shape the industry. In particular, our study found that the pace of power shifts from today’s advanced economies to the emerging world and the degree of international coordination on financial policy are the two most critical uncertainties for the future of the global financial system. The report therefore explores four challenging scenarios.

Driving forces and critical uncertainties
In phase one of the New Financial Architecture project, the World Economic Forum engaged more than 250 industry practitioners, policy-makers and academics in workshops, interviews and participation in a survey to identify and prioritize the key driving forces expected to shape the future of the global financial system between today and 2020. The engagement process resulted in an inventory of 34 prioritized driving forces (Figure 1).

Financial regionalism is a world in which post-crisis blame-shifting and the threat of further economic contagion create three major blocs on trade and financial policy, forcing global companies to construct tripartite strategies to operate globally.

Fragmented protectionism is a world characterized by division, conflict, currency controls and a race-to-the bottom dynamic that only serves to deepen the long-term effects of the financial crisis.

Re-engineered Western-centrism is a highly coordinated and financially homogenous world that has yet to face up to the realities of shifting power and the dangers of regulating for the last crisis rather than the next.

Rebalanced multilateralism is a world in which initial barriers to coordination and disagreement over effective risk management approaches are overcome in the context of rapidly shifting geo-economic power.

Phase two prioritiesIn phase two of the New Financial Architecture project, the World Economic Forum will work closely with industry stakeholders to delve deeper into the implications of this analysis, with the goal of exploring collaborative strategies and areas of systemic improvement. This will involve an examination of the potential future sources of systemic risk, as well as opportunities to reposition the industry for sustainable, long-term growth in ways that maximize the stability and prosperity of both the financial and real economies.
Figure 2: Transition from phase one to phase twoThe World Economic Forum will be hosting workshops with key stakeholders throughout 2009January 28 – February 1: Davos-Klosters, Switzerland
March (TBC), London, United Kingdom
May 14, Dead Sea, Jordan
September 10, Dalian, China
September (TBC), New York, United States

That when the increase in credit products was made, there was no oversight which would have monitored the real increase in currency denoted by the exorbitant numbers and its uses throughout the financial system.

Because there has been no real oversight – what is not real that will undermine the value of everything are those credit instruments and the default swaps insuring them which were all being treated and traded and valued in the same way as hard capital assets and as cash, as if they were actual US dollars in existence somewhere.

And, that is the real problem.

The money that is being printed isn’t ever going to be enough to represent the full amount of dollars that have been put into play by the unrestricted leverage, toxic credit products and inflated asset values used for the game.

– cricketdiane, 03-24-09

(Happy birthdays to my son, Mr. A and my daughter, Ms. R – and Happy Today to all of my children whatever y’all are doing today. I miss you.)